TDS Collection For NRIs in 2024

In the previous blog, we discussed how Indian residents can file TDS on property; I explained that in some simple steps and how one can easily save oneself from being fooled. Today, in this blog, we will discuss TDS for NRI on sale of property and how you can fill the property's TDS on the seller's behalf if the seller is not an Indian resident.

If you are an NRI and selling your property in India, you have to pay a tax to the Indian government on your capital gain; the tax depends on whether the capital gain is short or long-term. If the property is sold after two years from the date it was owned, it comes under long-term capital gain, and in less than two years, it comes under short-term capital gain.
 

How To Pay TDS on Property For NRI

When an NRI sells property in India, they might owe taxes on the gains. Long-term gains are taxed at a fixed rate of 20%, while short-term gains are taxed based on their income tax slab rates.

However, NRIs can take advantage of exemptions to save tds for NRI on sale of property. Section 54 allows an exemption for long-term gains from selling a house property. This exemption applies if the NRI reinvests the profits in buying or constructing another house property in India within specific timeframes. The new property must be in India and not sold within three years of purchase. Additionally, only one property can be purchased or constructed to claim this exemption, and if sold within three years, the exemption for tds on immovable property for NRI may be revoked.

Exemption under Section 54

Another exemption, Section 54F, applies to long-term gains from selling any capital asset other than a residential house property. To claim this exemption, the NRI must use the entire sale receipt to buy or construct a new house property in India within specific timeframes. Like Section 54, the new property must not be sold within three years of purchase, and the NRI must not own more than one house property besides the new one. If the entire sale receipt is invested, the capital gains are fully exempt; otherwise, the exemption is allowed proportionately.
 

Exemption Under Section 54EC

Additionally, NRIs can utilise Section 54EC to save tax on long-term capital gains by investing in specified bonds issued by entities like NHAI or REC. These bonds have a redemption period of five years and must not be sold before that time. The NRI has six months to invest in these bonds, and the maximum investment allowed per financial year is Rs 50 lakhs. NRIS must provide proof of investment to the buyer to avoid TDS deductions and claim excess TDS deducted at the time of return filing for a refund.

These exemptions allow NRIs to reinvest their capital gains in specific ways, such as purchasing property or investing in bonds, to avoid or minimise taxes on their payments.When an NRI sells property in India, the buyer has to deduct a certain amount, known as TDS (Tax Deducted at Source), from the sale proceeds. If the property is sold within two years of purchase, the TDS rate is higher at 30%. Otherwise, it's 20%. The buyer is responsible for deducting the TDS amount and depositing it with the Income Tax Department.

TDS Deduction Process

To deduct TDS, the buyer must obtain a TAN (Tax Deduction Account) and deposit the TDS amount through e-challan by the 7th day of the next month after paying the seller. They must also file a TDS return in the next quarter and provide Form 16A to the NRI seller.However, sellers can reduce their TDS payment by obtaining a NIL/lower deduction certificate from the Income Tax Department called Form 13. This certificate allows for TDS deduction at a lower rate. Sellers should apply for this certificate before finalising the sale agreement. If TDS is not deducted correctly, the buyer and seller could face penalties and interest charges.

For NRIs to repatriate the sale proceeds outside India, they must submit Form 15CA and 15CB, with 15CB being signed by a chartered accountant. NRIs can repatriate up to USD 1 million per year outside India.

Form 27Q is a document used for reporting taxes deducted at the source (TDS) from payments made to Non-Resident Indians (NRIs) and foreigners, excluding salary payments. It needs to be filled out quarterly with details about who paid the money, who received it, and how much tax was deducted.

The people involved are the payer (individual or organisation giving money to the NRI) and the payee (the NRI receiving the money). The payer deducts TDS before transferring the money to the NRI.

Form 27Q requires information like PAN numbers, contact details, and addresses of both the payer and the payee, as well as details about the TDS amount, tax deposit date, and method of deposition.

To file TDS on immovable property for NRI with Form 27Q, the payer deducts TDS from payments made to NRIs, deposits it using a challan by the 7th of the following month, and submits Form 27Q before the filing deadline for that quarter.

After filing, the payer provides a TDS certificate (like Form 16A) to the NRI within 15 days of the filing deadline for the relevant quarter.
 

In conclusion, a buyer must deduct the TDS amount before making the final payment to the NRI seller. Otherwise, the government would penalise the buyer as per the guidelines; in the above article, I tried to explain the process so that you can understand it and evaluate it on your own. 

Disclaimer: This article is written to spread literacy about TDS deduction. Do not take it as your primary source of information while filing your TDS, and always seek guidance from an experienced Chartered Accountant or anyone involved in such legal matters and for further information you can also go through the Indian government's website Incometaxindia.gov.in .